Defense Commissary Agency’s Purchases of Fresh Produce for Japan and South Korea

We determined the impact of the current local purchase process by the Defense Commissary Agency (DeCA) for fresh produce versus the previous DoD-funded transportation process in the Pacific. Specifically, we reviewed the impact as it pertains to the cost and freshness (quality) of fresh produce on DeCA and the DeCA customers in Japan and South Korea.

We performed this audit in response to a reporting requirement contained in House Report 114-537, which accompanied the National Defense Authorization Act for FY 2017. The House Committee on Armed Services was concerned about the performance of the current Pacific fresh fruits and vegetables delivery contracts, the past contract, and the fresh produce local purchase authority across DeCA’s enterprise outside the continental United States. The Committee also inquired about the impact as it relates to the overseas cost of living allowance.

This is our second audit on DeCA fresh produce contracts in the Pacific theater (region). We were not able to compare the quality of fresh produce from the previous contract versus the current contract because DeCA produce personnel did not routinely document fresh produce quality in the commissaries under the prior contract.

Background

DeCA’s mission is to provide an efficient and effective worldwide system of commissaries for the resale of groceries and related household items at reduced prices to members of the Uniformed Services, retired members, dependents (families), and other authorized customers to enhance their quality of life and to support military readiness, recruitment, and retention. DeCA operates 51 commissaries in the Pacific theater, of which 25 are located in Japan and South Korea.

Findings

We determined that under DeCA’s local purchase process for fresh produce in Japan and South Korea, fresh produce contracts were more cost effective than the previous DeCA-funded transportation contract for fresh produce. Purchasing fresh produce from local sources was more cost effective for DeCA because under the current contract, the contractor paid to transport fresh produce to Japan and South Korea. Under the previous contract, DeCA paid $114.6 million from FYs 2013 through 2015 to transport fresh produce to the same locations.

We also determined that average customer prices from November 2015 through April 2017 for 239 unique fresh produce items at Japan commissaries increased 20.9 percent on the mainland and 23.6 percent for 237 unique fresh produce items on Okinawa. At commissaries in South Korea, prices increased 31.5 percent for 231 unique fresh produce items. In addition, average customer prices that we surveyed in May and June 2017 for locally grown produce sold at the commissaries were 27.1 to 45.3 percent higher than local market prices.

Despite price increases, the impact on the cost of living allowance rate for military personnel in FY 2016 for locations we visited was minimal because fresh produce only accounted for less than 2 percent of the cost of living allowance calculations.

Finally, a majority of DeCA customers we surveyed rated the quality of fresh produce sold at the commissary to be worse than the quality of fresh produce sold at local markets in Japan and South Korea.

The higher prices occurred because DeCA’s market research did not adequately evaluate the feasibility of obtaining fresh produce items from in-country for DeCA commissaries in the Pacific theater. They also did not conduct a business case analysis to determine the impact on customer prices and fresh produce quality.

As a result of the local purchase contracts, DeCA has saved an average of $38 million per year since 2016 by not subsidizing transportation costs for fresh produce shipped to Japan and South Korea. However, DeCA’s fresh produce contracts for Japan and South Korea did not meet the intent of the local purchase process, which is to supply quality produce at prices comparable to prices under the previous contract where DeCA subsidized transportation of fresh produce.

Recommendation

We recommend the Director, DeCA, conduct a business case analysis or detailed market research on the current Pacific fresh produce purchase process to identify potential opportunities to lower fresh produce prices and improve produce quality for customers.

Management Comments and Our Response

The Director, DeCA, agreed to conduct a business case analysis or detailed market research on the current Pacific fresh produce purchase process to identify potential opportunities to lower fresh produce prices and to improve produce quality for customers. Therefore, the recommendation is resolved but will remain open. We will close this recommendation once we verify DeCA completed its business case analysis or market research.